Awaiting judgment on demonetisation

Fri 24 Feb 2017

The introduction of the Specified Bank Notes (Cessation of Liabilities) Bill, 2017 is a rather late move to give legislative support to the demonetisation of Rs. 500 and Rs. 1,000 notes.

In 1978, when the Morarji Desai government decided to demonetise Rs. 1,000, Rs. 5,000 and Rs. 10,000 notes, it first promulgated an ordinance. Then it got legislative backing through the passage of the High Denomination Bank Notes (Demonetisation) Act, 1978. However, the Narendra Modi government implemented the policy in November 2016 without legislative support. Mr. Modi’s televised announcement was followed by a notification under the Reserve Bank of India Act, 1934.

The demonetisation exercise was replete with multiple, and often contradicting, notifications. The government did not seek legislative support during the winter session of Parliament, from November 16 to December 16, 2016.

It was only a fortnight after the Parliament session ended on a deadlock over the issue that the government initiated the process of procuring legislative support by promulgating on December 30 the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016.

But by this time, the Supreme Court had already referred a batch of writ petitions challenging the demonetisation policy to a five-judge Constitution Bench. The reference contained nine questions of a very fundamental yet probing nature, starting with whether the November 8 RBI notification was “unconstitutional” and whether the manner in which the policy was implemented suffered from “substantive and procedural unreasonableness”.

The 2017 Bill seeks to extinguish the liability of the government and the RBI on demonetised Rs. 500 and Rs. 1,000 notes that have not been returned. It is meant to replace the 2016 Ordinance. The declared objective is the same: to get rid of a “parallel system” of black money and end the spread of counterfeit currency. The Bill not only extinguishes the liability of the government and the RBI, but also criminalises citizens found “holding” more than 10 demonetised banknotes.

But in March 2017, the Constitution Bench is scheduled to hear the petitions challenging the demonetisation. Judicial pronouncements that the move was not implemented with legislative backing or that the RBI notification was ultra vires of Section 26 (2) of the RBI Act, 1934 could be a blot on the government.